ENTERTAINMENT AND MEDIA REPORT THE EVOLUTION OF PROFIT PARTICIPATIONS / NAVIGATING DISRUPTION IN THE MOTION PICTURE AND TELEVISION INDUSTRY CONTENTS WELCOME

Profit participations have always been a complex WELCOME and emotional subject for talent, who wonder “Am 03/ I being paid what we agreed to contractually?” For studios, it is about “Am I paying too much, and are EXECUTIVE SUMMARY my stakeholders leaving money on the table?” Now, 04/ with new delivery methods like SVOD, non-traditional studios like Netflix and the proliferation of scripted television series and independent films, we have HIGHLIGHTS FROM THE ENTERTAINMENT SURVEY entered into a new era where profit participations and 05/ deal structuring are continually in flux.

TOP INDUSTRY TRENDS In this year’s whitepaper, we take a closer look at 06/ where we have been, where we are and where we are going with profit participations in a changing movie and television industry. We have assembled a truly WHITEPAPER EXPERTS knowledgeable group of industry experts to share 08/ their views on this important aspect of the business as they consider what future deal structures will entail. THE HISTORY OF PARTICIPATIONS This is our 5th annual whitepaper, and I am extremely 12/ proud of the information you will find as you read on.

This paper is part of our continuing efforts to provide TODAY’S LANDSCAPE: WHO IS GETTING THE $ 18/ value to the entertainment community.

24/ THE IMPACT OF TECHNOLOGY Ilan Haimoff GLOBALIZATION Partner and Entertainment and Media Practice Leader, 28/ Green Hasson Janks 34/ CRYSTAL BALL: GAME CHANGERS 41/ CONCLUSION WE HAVE ENTERED INTO A NEW ERA APPENDIX A: 42/ KEY TAKEAWAYS WHERE PROFIT PARTICIPATIONS AND DEAL STRUCTURING ARE CONTINUALLY IN FLUX. APPENDIX B: 47/ GREEN HASSON JANKS PROFIT PARTICIPATIONS PRACTICE APPENDIX C: Ilan Haimoff BIOGRAPHIES Partner and Entertainment and Media Practice Leader, 50/ Green Hasson Janks

2 3 HIGHLIGHTS FROM THE 2017 EXECUTIVE SUMMARY GREEN HASSON JANKS ENTERTAINMENT SURVEY

Introduction about the overseas market. Pick the right distributor to There have been rapid changes in our motion picture and maximize your potential share of the profits. This even television industry, including how content is delivered applies to what we do at Green Hasson Janks when to audiences through new media platforms and where planning our profit participation audits. We need to content is consumed, driven by a huge increase in revenue make sure we have resources in place around the world generated overseas. through our HLB affiliation, plus we need to gear up for more travel.” Ilan Haimoff, Partner and Entertainment and Media 63% 46% 44% Practice Leader at Green Hasson Janks, translates this Green Hasson Janks is an independent member of HLB Percentage of Percentage of Percentage of industry change into practical advice. International, a worldwide organization of professional respondents who think respondents who prefer respondents who accounting firms and business advisors represented in that PVOD will be an a large upfront payment currently have “If I were to hire a company to distribute my film, I over 100 countries. This affiliation provides access to the option for a mass in lieu of any backend productions with Chinese would look at studios that have networks overseas,” subject matter experts of other member firms in most audience in the next participation in today’s investment Haimoff explains. “The multiples you can make with major cities around the world. “This affiliation provides three years entertainment landscape overseas sales through the international market via a us and our clients many benefits,” Haimoff explains. ‘The major distributor makes it a one-stop shop rather than biggest one for our Entertainment and Media Practice is having to make territory-by-territory deals. Therefore, that we can pursue participation audits almost anywhere.” you just need to incur the expenses once and the revenue will be maximized.”

Of course, Netflix has disrupted the traditional model and has created a revolution. When they turn on the switch it reflects deals they have made all over the world. Haimoff expands. “Where you historically had generated 58% 70% 84% income through Netflix, it would be available in the U.S., Percentage of respondents Percentage of respondents Percentage of respondents Canada and the U.K. in the past. Now Netflix, and even who think there will be who think that major who think that the likely Amazon (Prime), have distribution in almost every country more U.S./China co- studios will experiment with price point at which a critical in the world. It is global and instantaneous via streaming.” productions to bypass the PVOD, but hold off releasing mass of viewers would This digital revolution may impact the different windows film quota system licensing premium blockbuster consume PVOD offerings for in the life cycle of motion pictures or television series and THE MOVIE content on PVOD feature films is less than $30 may require a response from studios, exhibitors and other BUSINESS BOOK stakeholders,” Haimoff added. Green Hasson Janks Partner Ilan Haimoff authored a chapter on studio accounting On the international front, Haimoff also notes that a title and movie and television participation that sells in China could generate significant revenues. audits for the fourth edition of The Movie “For example, Furious 7 made more than $390 million Business Book, a definitive sourcebook of box office in China alone, which was more than the that covers financing, revenue streams, revenue generated in the U.S. and Canada combined!” WHEN YOU CREATE CONTENT, marketing, globalization and other current topics. YOU HAD BETTER THINK ABOUT The overseas market goes beyond the movie theaters, as there is a real digital revolution that has occurred and is THE OVERSEAS MARKET. “I am honored to be asked to contribute my 49% still occurring. There is a growing customer base overseas experience and knowledge to this book that Percentage of whose buying power is increasing. Haimoff alerts content respondents who say is comprised of so many talented industry Ilan Haimoff creators to take this into account. “It matters,” Haimoff the most attractive M&A experts,” says Haimoff. Partner and Entertainment and Media Practice Leader, says. “When you create content, you had better think targets are those that own Green Hasson Janks an extensive library of film and television products

4 5 NETFLIX, AMAZON AND APPLE ARE REPLACING TRADITIONAL BUYERS OF CONTENT. . TOP INDUSTRY TRENDS Producers are attracted to the buy-out model with new media buyers, where they are paid their production costs REPORTED BY OUR SUBJECT MATTER EXPERTS plus a premium, with no backend. While this model has no potential for an upside, it avoids the risk of losing money. This year’s subject NEW MEDIA matter experts EACH OF THE weighed in on the TRADITIONAL trends that will WINDOWS ARE affect the movie TELEVISION BEING DISRUPTED and television BY THE LIKES OF industry and profit THE NATURE OF NETFLIX. participations STAKEHOLDERS IS Is subscription- in coming days, EXPANDING. MORE QUALITY TELEVISION based video on months and years. More content CONTENT WILL BE CREATED. demand (SVOD) owners, financiers, With so many channels to the alternative to, Read on for more co-distributors choose from, audiences or replacement in-depth analyses and others are will gravitate toward higher of, pay television of these and other making profit quality content, regardless and/or home trends. participations of where it resides. video? Could more complex. SVOD become a single source of consumption for the so-called cord cutters? NETFLIX IS A NEW FORCE TO RECKON WITH. THERE IS A SHIFT The studios suddenly PREMIUM VOD (PVOD) IS STILL AN IMPORTANT TOPIC. FROM HOME VIDEO began to realize that In the very near future, we will likely see an TO SVOD. Netflix is a major increase in PVOD explorations by conventional The traditional home competitor, which distributors and premium distributors like Amazon. video business of industry leaders This new digital platform will allow for early DVDs and Blu-rays have intimated may viewing at home, and at price points of up to $50. LITIGATION is plummeting. have been a catalyst A major concern of exhibitors is that PVOD may TELEVISION Meanwhile, for Disney recently cannibalize theatrical distribution. PRODUCTION IS MORE revenues have announcing that it will IMPORTANT THAN EVER. dramatically be moving its content off From a participation increased for SVOD. of the Netflix platform audit perspective, more by 2019 and creating a and more Green Hasson competing streaming Janks clients are service instead. involved in television. MERGERS AND ACQUISITIONS The number of pay MAY ACCELERATE.. PROFIT PARTICIPANTS ARE TURNING cable channels has Verizon has indicated it has TO LITIGATION MORE OFTEN. expanded enormously, FINANCING an interest in acquiring a In the past, agencies with package and it appears the STUDIOS WILL CONTINUE TO studio or cable company. commissions would do participations reason for this trend UTILIZE OUTSIDE INVESTORS. International buyers, with audits but mostly resolve claims/ is that studios want to Sharing the risk and reward deep pockets, are also on the issues outside of litigation. However, take less risk on films, will be the primary motivation. lookout. There is even chatter this appears to be changing. which have higher risk about Netflix being acquired of success. by a major studio. All of these deals reflect the desire to vertically integrate, which is driving much of the M&A activity in Hollywood.

6 7 WHITEPAPER EXPERTS

PRINCIPAL CHAPTER AUTHORS

Green Hasson Janks is one of the premier profit participation audit firms in the world. Our professionals have extensive career experience with a ANITA WU wide range of global entertainment and Principal, Green Hasson Janks media companies, including every major Hollywood studio and many smaller studios and independent producers. Our dedicated team has extensive participation forensic experience, providing services related to more than 83 of the top 100 domestic grossing live action films of all time through 2014, as well as a long list of top-rated television series.

ILAN HAIMOFF STEVE SILLS Partner, Partner, Green Hasson Janks Green Hasson Janks

PETER KLASS MICHAEL SIPPEL Senior Manager, Senior Manager, Green Hasson Janks Green Hasson Janks

8 9 WHITEPAPER EXPERTS

INTERNAL SUBJECT MATTER EXPERTS EXTERNAL SUBJECT MATTER EXPERTS Green Hasson Janks is an independent member of HLB International, a worldwide organization of professional accounting firms and business advisors represented in over 100 countries. “This affiliation provides us and our clients many benefits,” Haimoff explains. CRAIG EMMANUEL ‘The biggest one for our Entertainment Partner, Vice-Chairman and and Media Practice is that we can pursue Chair of the Talent Practice, participation audits almost anywhere.” Loeb & Loeb

BEN SHEPPARD JOHN BERLINSKI Principal, Partner and Chair of the Green Hasson Janks Entertainment Group, Kasowitz Benson Torres LLP

KEN HOLLOWAY Senior Vice President Finance and Controller, Endgame Entertainment

TRACY LIANG Supervising Senior, Green Hasson Janks DR. SEAGULL HAIYAN SONG Senior Advisor, Hogan Lovells Professor and Director, Loyola Law School LA

10 11 THE HISTORY OF PARTICIPATIONS

PRINCIPAL CHAPTER AUTHOR

STEVE SILLS, PARTNER, GREEN HASSON JANKS IMAGE SOURCE: WWW.THEREDLIST.COM 1212 13 Green Hasson Janks Partner Steve Sills, a pioneer “This case goes back to the 1970s, but it is still resonating would typically need to be in production for many years. Eighty to one hundred episodes used to be a good mark, but in the participations field, shares a story about the today,” Sills explains. “Back then, there was a company the better marker now is the number of seasons produced, even if a season is only seven episodes.” origination of participations. called Magnetic Video that negotiated with 20th Century Fox to distribute Betamax tapes of Fox’s films. The cost Wu also thinks reality television is huge. It Started with Jimmy Stewart to produce and market the tapes was approximately 60 Participations are generally thought to have begun with percent of the total cost, making the net 40 percent. Of “The business model for reality television is very different than for scripted television” Wu expands. “For reality Winchester ‘73 starring Jimmy Stewart. The studio could that 40 percent, Fox got 20 percent and Magnetic Video television, there is a level of unpredictability, and perhaps limited potential, for exploitation in the supplemental not afford him but paid him a percentage of the profits. got 20 percent. That became the model, and the standard markets. However, reality television can thrive from other funding sources such as sponsorships, product integrations, The movie was a huge success and made money for amount paid to participants became 20 percent. The 60 format licenses and merchandising.” Stewart and Universal Studios. Smart performers were percent for making the videos eventually was reduced getting pieces of their movies long before this, though, to 25% to 30% as the industry matured. For streaming as far back as the 1930s and 1940s. Performers that were services, the cost is negligible. So what happened to the powerful enough had the leverage to do so. 80 percent differential? The studios now just keep it and producers and content creators still get just the 20 percent, Profit participation really took off in the 1970s and 1980s, even though the costs are reduced or eliminated.” according to Sills. Sills finds that the issue is with the studios interpreting “Some smaller studios wanted to compete with the the contract in their own best interest. His approach is to big boys and used percentage deals to get the talent go in and look at the contract in a different way to claim on board,” Sills says. “There are some really well- additional compensation for his clients. publicized examples like Jack Nicholson on Batman, but MOVIE MONEY: there are many, many more. The inevitable result was For Anita Wu, a Principal at Green Hasson Janks legal challenges, many times centering on the studio’s specializing in profit participations, television is a key UNDERSTANDING definition of the ‘net profit’ from which the participations focus. HOLLYWOOD’S (CREATIVE) were paid. No matter how much money a film made, it ACCOUNTING PRACTICES seemed like it just broke even in the end. The irony is that “In the composition of our work, we are seeing a shift Green Hasson Janks Partner Steve stars still want net deals because it means they are moving toward more television profit participations,” Wu Sills is the co-author of the industry’s up the food chain, even if they do not personally make explains. “In the past, most of the profit participation most important book on profit money — it means they will be able to negotiate for more audits we performed were focused on the film side of our participation accounting. The book the next time.” industry. Now, in the age of ‘Peak TV,’ which reflects the describes the distribution of a motion glut of television products out there, a long-running show picture’s “profits,” which for most Key Shifts in the Profit Participation Landscape can easily eclipse the financial success of a blockbuster filmmakers is a murky, labyrinthine Since Jimmy Stewart disrupted the process, there have film, or even a blockbuster film franchise. And talent domain ruled by studio/distributor been seismic shifts in profit participations. The change representatives are fighting hard to secure the backend accountants and lawyers. from digital media to new media is one part, but Steve reward for their clients. Early on, it is difficult to tell how Sills is more concerned with what has led to that and how much these television profit participations will ultimately Movie Money unravels, demystifies studios are reacting. be worth, though. For it to be profitable, a television series and clearly explains the film industry’s unique, arcane and creative “It is about vertical integration — studios buying accounting practices. It examines a businesses that are ancillary to theatrical distribution and film’s various revenue-consuming how that affects participations,” Sills says. “For example, components and presents numerous we audited a film at a studio and noticed that no sale had IT IS ABOUT VERTICAL industry definitions of gross and net been made to Netflix for SVOD rights. The studio had given INTEGRATION - STUDIOS profits and the many ways in which the rights away as part of a pay television arrangement these figures are calculated. It also with an affiliated company. The affiliate retains the Netflix BUYING BUSINESSES provides in-depth discussions of revenue and since the studio receives no share of that THAT ARE ANCILLARY TO various aspects of profit participation revenue, none is reported to the profit participant. The terminology, accounting practices, and studio still gets the money through the back door — their THEATRICAL DISTRIBUTION. deal practices along with chapters on investment in the pay television entity. My concern is that audits, claims and negotiating tips and more of these types of transactions will occur.” tricks. A third edition of Movie Money is currently in process. Sills describes another case that changed the profit Steve Sills participation model. Partner, Green Hasson Janks

14 15 CELEBRATING THE 10TH ANNIVERSARY NOW, IN THE AGE OF ‘PEAK TV,’ OF THE PROFIT PARTICIPATION AUDIT DEPARTMENT AT GREEN HASSON JANKS A LONG-RUNNING SHOW CAN EASILY ECLIPSE THE FINANCIAL SUCCESS OF A BLOCKBUSTER FILM, OR EVEN A BLOCKBUSTER FILM FRANCHISE.

Anita Wu Principal, Green Hasson Janks

The first thing one notices about Green Hasson Janks In 2007, when he was 60 years old, he decided to merge with Partner Steve Sills when meeting him is his passion for all Green Hasson Janks. He promised the firm that he would things entertainment. “I get to work in an industry that I love stay five years, but it has now been 10, and he is still going being involved in,” Sills says. “I love going to the movies and strong. He still loves what he does and sees no end in sight. listening to music.” Sills’ involvement with entertainment began at home. He described growing up in a “show “Joining Green Hasson Janks has given me the opportunity business” household. to expand our practice,” Sills explains. “The entertainment business was transforming into an international market, “My father was a business manager, representing various and I wanted access to more resources to serve my clients.” entertainment clients, like Monty Hall from Let’s Make a Deal fame,” Sills adds. “My mother was an actress and appeared Green Hasson Janks now has 18 people that do profit on stage, in film and on television.” participation audits, supplemented by the international reach of HLB. Sills feels he could not have grown like that When Sills turned 14, he started singing with a rock n’ roll on his own. band, joining various bands several times over the years. Even his military service related to entertainment — he was Ilan Haimoff, Partner and Entertainment and Media assigned for a year to a base in Northeast Thailand where Practice Leader at Green Hasson Janks, applauds Sills. he had a radio and television show. “Through the merger in 2007, Green Hasson Janks achieved Sills started 40 years ago as a CPA at Laventhol and Horwath. a significant presence in profit participation audits,” Haimoff Most of his clients were in the entertainment business says. “It also gave us a great presence in the industry because that was his interest. After about five years, beyond participations — it really enhanced our visibility Laventhol and Horwath acquired a small entertainment firm and position. Thanks to Steve, we are the go-to firm for that specialized in profit participation audits and asked him participation audits.” to get involved. He did that until Laventhol and Horwath went out of business in 1990. He then started Sills & Adelman.

16 17 TODAY’S LANDSCAPE: WHO IS GETTING THE $

PRINICPAL CHAPTER AUTHOR

ANITA WU, GREEN HASSON JANKS

1818 19 have financial skin in the game,” Wu says. “There may “There are two aspects to the be explicit language in their contracts that addresses issue,” Emanuel explains. at-source reporting, the treatment of ‘soft money,’ limits “Is there a change in the deal THE RECENT TREND IN INDEPENDENT on the amount, if any, of allowable overhead charges, etc. structure? Yes. Is there a real THEATRICAL RELEASE PERFORMANCES There also tends to be more visibility to the underlying change to the economics? Yes documents in an audit setting for those who bear some of again. Netflix is a buyout — are HAS TO LEAD TO DISTRIBUTORS the financial risk in a project.” you giving away the upside? But only a small number of movies REQUIRING BETTER TERMS FOR THE Craig Emanuel, Partner, Vice-Chairman and Chair of have an upside anyway. You are RISK OF PUTTING UP SIGNIFICANT P&A. the Talent Practice at Loeb & Loeb, also feels there has giving away your upside and on been a shift in the number and nature of stakeholders. a highly successful movie you will leave money on the table, but Ken Holloway “Except in limited circumstances you see the concept of what is the real consequence of Senior Vice President Finance and Controller, first dollar gross participation largely coming to an end that? The Netflix/Amazon/Hulus Endgame Entertainment and participations, even for major talent who now share of the world are changing the in a breakeven ‘pool’ participation (which the studios nature of our business.” claim is making them more of a partner in the project Craig Emanuel, Partner, Vice-Chairman and Chair of ending).” Emanuel says, “The value of the pool is getting Emanuel sees differences between companies like the Talent Practice at Loeb & Loeb, adds some sage reduced, as is the definition of what is being included Amazon, which has a genuine theatrical release, and advice for the industry. in the pool, resulting in a shrinking participation. That Netflix, which does not and where the potential for a Deal Structures are Shifting represents a major shift over the last few years. The only backend participation still exists. “We cannot ignore the shift that is taking place in our In a new world ruled by SVOD, Netflix and a radically money you can count on is the money that is budgeted business,” Emanuel says. “Deals will need to adjust to altered delivery landscape, it was inevitable that deal into the film. Box office revenue just does not translate the “As a consumer, why spend the money on going to the that model. It is better to get a film made and seen than structures would change. More content is spread across same way anymore, and studios are a lot more savvy in theater if you can see it at home?” Emanuel asks. “The not. Box office revenue is largely flat, but the younger audiences, films debuting on streaming services and not offering bonuses that would be payable prior to their independent film business in many cases is moving audiences are moving to Netflix or streaming or not shorter televisions seasons mean studios want to pay less, true breakeven position.” away from the theatrical release unless they are the watching movies at all. Many in that generation do while content creators and talent want to be paid at least kind of movie that might attract award consideration. not even have a television — they are not going back the same as they have become accustomed to. Emanuel sees a couple of major impacts to talent, For a Fox Searchlight or a Sony Classics, films may get to the theater unless it is an event movie. There will producers and stakeholders. released on 50-75 screens for limited runs but it is hard be exceptions, but that is the changing nature of our Green Hasson Janks Principal Anita Wu sees a definite for them to sustain longer runs unless the film becomes business. Exhibitors now have the challenge of getting studio strategy regarding talent. a breakout movie or has attracted attention through people to go to the theater — they are updating their festivals or awards.” venues with features like restaurants, bars, and shopping, “For talent, which is largely defined as actors, writers, and providing more of a cultural experience than just producers and directors, many studios now set aside a Ken Holloway, Senior Vice President Finance and going to the movies.” specific percentage for profit participations that is put up THE ONLY MONEY Controller at Endgame Entertainment, a financier for grabs — it is up to the talent and their representatives and independent film producer, also describes some Mergers and Acquisitions May to divide that percentage among themselves,” Wu YOU CAN COUNT ON challenging differences related to producing a feature for Drive Further Industry Disruption explains. “Generally, we are starting to work with a larger IS THE MONEY THAT Netflix, as compared to the traditional independent model Mergers and acquisitions like Lionsgate’s purchase number of profit participants on a given project. In a pool – foreign presales and a studio domestic release. of STARZ, MGM taking full ownership of EPIX, Hulu’s deal, presumably, everyone would have the same profit IS BUDGETED INTO ownership by Universal, Disney, Fox and Turner, and definition. Outside of a pool deal, while there may be THE FILM. “Netflix is a great partner, but the tradeoffs are not the pending acquisition of Time Warner by AT&T some differences in their profit definitions, the interests of insignificant.” Holloway explains, “A guaranteed fee continue to reshape the entertainment industry and the various participants are aligned on most of the issues BOX OFFICE comes at a cost of not owning the IP (no library value) and have an effect on participations. Notably, Apple ended we come across, and we feel they would get better results no results-based upside potential. For a content creator, 2016 with $246 billion in cash, enough to buy Netflix if they audited and settled together. They should be REVENUE JUST DOES the lack of long-term ownership rights is a material change and HBO’s parent company, Time Warner, with more allowed to join forces, but some studios balk and instead to their business model.” than $100 million left over! seem to take a more divide-and-conquer approach to NOT TRANSLATE THE resolving common items of dispute.” SAME ANYMORE. Holloway went on to say, “Having said that, the recent Anita Wu of Green Hasson Janks sees a more trend in independent theatrical release performances has complicated participations process as a result. Wu is also seeing the nature of a project’s stakeholders to lead to distributors requiring better terms for the risk of expand to include more content owners, financiers, co- putting up significant P&A – thus lessening a producer’s “We pay close attention to transactions like MGM’s distributors and other roles. Craig Emanuel and talent’s upside, which somewhat levels the field.” acquisition of EPIX six months ago,” Wu expands. “EPIX Partner, Vice-Chairman and Chair of the Talent Practice, is a pay television exhibitor of mostly film. When we audit “Definitions tend to lean more favorably to those who Loeb & Loeb

20 21 profit participations, we look for the money generated “Arbitration can have the benefit of confidentiality and in all of the supplemental markets — for example, if a can offer a more streamlined and cost-effective approach Bond film is shown on EPIX, we want to make sure the to resolving disputes. The trend towards confidential FIRESIDE CHAT WITH BEN SHEPPARD transaction was reported at fair market value, and that no arbitration has resulted in fewer disputes being made other rights were given to EPIX without a proper valuation public but no shortage of disputes being litigated.” GREEN HASSON JANKS LITIGATION SUPPORT AND EXPERT WITNESS PRACTICE LEADER of such rights. Studios want to extend their reach into all forms of distribution — it is to their advantage to own as many theaters, broadcasters, etc. as possible, and offer their exclusive content to the public, but that also means Jennifer Sullivan, Senior Marketing Manager at Green Hasson Janks, sits down with they can charge their affiliated companies less for access Ben Sheppard to discuss the role of litigation in today’s entertainment landscape. to the content and hold onto more money within their overall corporate structure. From a profit participation SULLIVAN: What does the term “expert witness” mean for the film. By “pre-litigation,” I mean there were contractual perspective, the potential for undervaluing revenues and/ entertainment sector? questions, but no suit had been filed. The bank syndicate or overcharging expenses is real cause for concern. In SHEPPARD: The expert witness concept is about bringing that provided the financing had funded a loan with the addition, for services trying to break into the marketplace, actual industry experience and knowledge to bear on a expectation that they would get their investment back there is the intangible value of their exclusive content case to help explain nuances. It is preferable when trying plus a reasonable return. helping to build their brand. Of course, there also may be to either support or rebut a damages analysis. benefits from vertical integration — if distributors own SULLIVAN: Did they achieve that goal? several arms throughout the entertainment and media SULLIVAN: In today’s landscape, are there some types of cases SHEPPARD: Partially. After the film’s release, they got their space, their products get out more widely.” that come up more than others? money back, but not the return. They were thinking of SHEPPARD: Breach of contract cases come up quite often. suing the studio, and they brought me in to look at their Craig Emanuel, Partner, Vice-Chairman and Chair of These can include profit participations when talent, greenlight model. I looked at that and their revenue the Talent Practice at Loeb & Loeb, also warns about the for example, believes a studio is not complying with a participation agreement to determine if the syndicate’s pitfalls of vertical integration. contract. expectations were incorrect. The greenlight model was good, but the assumptions used were not likely to occur. “It will have an impact in that you are now faced with SULLIVAN: In breach of contract cases, are the issues the same an additional level of issues regarding pricing for these as they were five years ago or has it evolved? SULLIVAN: That is interesting. Can you tell us more about the different companies,” Emanuel says. “It is always a SHEPPARD: The types of issues are definitely different from assumptions? concern. On one level, having consolidation in certain five years ago. One case I recently worked on looked at SHEPPARD: It became apparent that they had not areas is a good thing because it promotes better commerce damages from a SVOD standpoint. I suspect we will see thoroughly researched the assumptions they were using between related companies, but we need a greater level of a lot more of that, meaning that as content distribution to determine the film’s revenue. They did not ask the right scrutiny to make sure the pricing is fair. Consolidation is shifts to new modalities, contractual interpretations are question — they asked if the assumptions were possible, inevitable — when studios eliminate the middlemen, the more likely to be questioned. but not how likely the projections would be achieved. more profitable they become.” THERE IS A GENERAL LITIGATION TREND. SULLIVAN: Can you describe “slate financing” and how it differs SULLIVAN: That must have been a long, involved court case. Litigation is Sometimes the Answer from profit participation? SHEPPARD: It could have been. The case was in New John Berlinski, Partner and Chair of the Entertainment PARTIES WHO SHEPPARD: What changes is who the parties are at the Zealand, and as part of negotiations, the syndicate’s Practice Group at Kasowitz Benson Torres LLP, has table. Slate financing is where a studio finds an investor Queen’s Counsel asked me if I would have made the deal a practice that centers on entertainment litigation and USED TO WORK to help offset the studio’s production risks on a number knowing what I know when the deal was made, and I had involves profit participation disputes and other licensing OUT DIFFERENCES of films. This has been going on since before I started 20 to say it was doubtful. I soon heard they had settled. disputes. He represents both studios and talent. years ago. The money comes from a variety of sources INFORMALLY ARE like bank loans, insurance-backed bank loans, hedge SULLIVAN: That is not what I expected to hear! “There is a general litigation trend,” Berlinski says. funds and foreign financing — they all have separate SHEPPARD: We can set reasonable expectations — that is “Parties who used to work out differences informally are NOW RESORTING TO revenue participation agreements. It is similar to profit a quality I see lacking from a lot of experts, at least ones now resorting to litigation. For example, you did not used LITIGATION. participation, but these investors are typically in a junior I have come up against. I am asked to base an opinion to see talent agencies suing buyers, or studios bringing position from actors, directors and producers — who will on certain assumptions and I give my opinion, but those claims against networks, but that is becoming more get their money first. As you might suspect, this is an assumptions can be wrong. common because of the focus on the bottom line.” atmosphere that generates disputes. SULLIVAN: Any final words? John Berlinski Berlinski adds, “The way those disputes play out has also SULLIVAN: Can you tell us about a specific case you were SHEPPARD: In this business, integrity is the only commodity Partner and Chair of the Entertainment Group, involved with? changed over the years. More and more disputes are being we have. I am not here to find the highest answer or the Kasowitz Benson Torres LLP SHEPPARD: Here’s an interesting one. I worked on a resolved in arbitration proceedings,” Berlinski explains. lowest answer — I am here to find the right answer. pre-litigation case for a New Zealand-based feature

22 23 THE IMPACT OF TECHNOLOGY

PRINCIPAL CHAPTER AUTHOR

MICHAEL SIPPEL, GREEN HASSON JANKS

2424 25 Technology is driving rapid change in the movie and strategically with its investment in BAMTech, and others television industry. Tech experts are working on new and are expected to follow suit. even more disruptive technologies every day. Advances can be in filmmaking, as in the use of drones to film Sippel sees the reasons for the quick ramp-ups as fairly THE USE AND ADVANCEMENT sequences for Pirates of the Caribbean: Dead Men Tell obvious. No Tales, advances can be in the theatrical experience OF TECHNOLOGY PRESENTS AN like 4D or immersive experiences, or they can be game “Technology has already been a huge part of the EXCITING FUTURE FOR THE WORLD changers like SVOD. entertainment industry’s success for at least the past 10 years through Internet, digital and streaming services,” OF ENTERTAINMENT, BOTH WITH Taking Digital Platforms In-House Sippel explains. “It is now a survival strategy to embrace There is speculation about the major studios trying to vertical integration and create efficiencies. Studios must CURRENT CONCEPTS SUCH AS VR, build up their own digital platforms to host their exclusive focus on the bottom line and show a return on investment 4D AND PVOD, AND WITH UNKNOWN content. The most obvious player is Disney, which recently for their stakeholders — growth is the name of the game, announced even if there IDEAS YET TO EVEN EXIST. they were are less people removing their going out to the content from movies.” Netflix and Michael Sippel launching Tech Companies Senior Manager, their own Now Producing Green Hasson Janks streaming Original Content service The most by 2019. prominent According to examples of the Hollywood tech companies Reporter, crossing over into Disney will content creation not create the are Netflix, technology, Amazon and but will Hulu, but there acquire a are numerous majority of examples. BAMTech, the streaming In these cases, technology Sippel thinks the company word “tech” is “The new players like Netflix and Amazon are looking for structures to get out of traditional backend deals — we are owned by ambiguous and now seeing more buyouts or estimated backend deals. The investors, creators and other talent will still be entitled to MLBAM, misused. profit participations, but the structure and reporting responsibilities might change.” the internet 1 company owned by Major League Baseball . “Anyone in an online digital space could be a tech Cybersecurity and the New Technology company,” Sippel explains “Amazon is a tech company Hacks of companies like Disney, Netflix, Sony, HBO, C-SPAN and many others are a major issue in Hollywood. The issue Green Hasson Janks Senior Manager Michael Sippel and is now a content creator. Apple iTunes and Apple Play may stem from the way movies get made — from coming attraction trailers that are designed to draw audiences into sees this as a logical progression. are apps you can choose from. Facebook Play is a new cinemas to eye-popping 3-D visual effects that burst off the screen, studios routinely farm out large chunks of work to 2 one. Google, and many others are in this space. It is logical vendors around the globe who compete to provide lowest-cost solutions . “The studios are behemoths,” Sippel says. “They have that the trend will continue. There will be more and more seen how successful Amazon and Netflix are, and they all content, and viewers will have endless choices, whether Sippel sees cybersecurity issues as potentially massive. must be looking at this — I am sure they will all have some that is good or bad.” form of streaming subscription service within the next “Companies like Sony and Netflix have strong measures in place, but if they can be hacked there is no limit to the three years.” Sippel adds that profit participation and contracts will be hackers’ ability,” Sippel says. “It is an issue. I have seen it in participations, where we are two to five years behind affected. (mostly due to the audit queue). We all saw it become an issue in the home video world (which is now dying anyway), Acquiring and Investing in Technology Companies but 5-10 years ago piracy affected the price at which the studio could sell their product due to guys on the street flooding Major studios are spending to quickly ramp up their “Generally, participations should remain basically the the market with cheap copies. Another concern is release dates. Someone could grab your content and release it ahead technology capabilities. Disney again is thinking same, but the deals will be different,” Sippel expands. of you. I am only slightly joking when I say that studios should seriously consider spending the money to hire a hacker to teach them how to avoid being hacked — maybe they should learn from the best!”

26 1http://www.hollywoodreporter.com/news/disney-pull-movies-netflix-launch-streaming-service-1027793 2http://www.latimes.com/business/hollywood/la-fi-ct-hacking-disney-netflix-20170523-story.html 27 GLOBALIZATION

PRINCIPAL CHAPTER AUTHOR

ILAN HAIMOFF, GREEN HASSON JANKS

2828 29 around a long time, and was used mostly by game shows THE LOS ANGELES TIMES and reality shows. In these cases, a show format started LIST OF THE TOP 10 GLOBAL FRANCHISES4 in another country and then was sold to other countries. American Idol, Big Brother and Wipeout are examples. Each was customized for a local audience. Homeland is MARVEL another example — Fox bought the rights based on a show CINEMATIC $9.3 in Israel and made it a huge success after customizing it to BILLION 1 UNIVERSE an American audience.

Haimoff does not see much correlation to the television market, however. HARRY $7.7 2 POTTER BILLION “On the television side, as much as they try to make the world global, they need to customize a show to reflect local culture, attitudes, humor and much more,” Haimoff STAR says. “Movies have done better, especially where they $6.7 WARS have broad concepts like science fiction, horror, or action. 3 BILLION Again, I would use the Fast and Furious franchise as an example, but there are many others like Star Wars, James Bond or Harry Potter.” JAMES $5.0 BOND Overall, Haimoff sees this as a growth engine for 4 BILLION Over the past decade, there has been a continual shift with big-money contracts to create content. Netflix globalization. toward international distribution, and the overseas has original programming, of course, but they also box office can now be as, if not more, important than buy the rights to make a television series or motion “It is a way to exploit emerging markets for the shorter X-MEN $3.8 the U.S. box office. A U.S. flop can be profitable if it pictures available to subscribers as a first window in term,” Haimoff explains. “The rapid growth will subside, 5 BILLION makes money overseas — take the recent example of television markets. For example, for a television series but right now it is working. Studios can leverage a Transformers: The Last Knight, which did $130 million on a network, this type of deal says that the next time it franchise or brand and go back for sequels — a great 3 domestically and $475 million overseas. Based on its shows will be on Netflix rather than cable. example is Furious 7. The key is to find a way to distribute THE FAST $217 million production budget, it would not have been it to as many territories as possible. It is a form of leverage AND THE $3.8 a success if measured by just its domestic revenue Ilan Haimoff, Partner and Entertainment and that generates lots more buyers now, even though this is a BILLION 6 FURIOUS performance. All things considered, Paramount Media Practice Leader at Green Hasson Janks, sees traditional concept. By releasing sequels, marketing costs recently announced its plans to release another confusion in the marketplace as a result. are reduced because people are familiar with the brand.” Transformers movie sequel in 2019. He sees exclusivity as a way to build the subscriber base TRANS- $3.7 Anita Wu of Green Hasson Janks sees a lot of interest for Netflix, regardless of what content is being acquired 7 FORMERS BILLION from international investors. or created. “It will add to the subscriber base if that is the only place to see the content,” Haimoff explains. ON THE TELEVISION SIDE, “There are so many investors from countries around “If they generate it, they can control it, but the number AS MUCH AS THEY TRY TO PIRATES $3.7 the world who want to learn from, and invest in, of subscribers they can add diminishes vis-a-vis the OF THE BILLION Hollywood,” Wu says, “Also, with a higher rate of amount they spend. I hear from bankers that Netflix is MAKE THE WORLD GLOBAL, 8 CARIBBEAN growth in entertainment consumption abroad, borrowing more money to create more content. The goal domestic entertainment companies are in hot pursuit is to add subscribers, but at some point on the curve it THEY NEED TO CUSTOMIZE of forging strategic alliances with international players may slow down.” A SHOW TO REFLECT LOCAL JURASSIC $3.6 and expanding their global presence. From a profit PARK BILLION participation standpoint, that means we are seeing an Haimoff says there are options for staying ahead of the CULTURE, ATTITUDES, 9 increase in our foreign clientele, as well as heightened curve. “They can do things like reducing the money interest in performing audits internationally.” spent on new productions, or they can look for new HUMOR AND MORE. sources of income, such as licensing to television DESPICABLE $2.7 Netflix Exclusivity licensees in the U.S. or overseas,” Haimoff says. 10 ME BILLION Netflix is now “the global channel,” with 190 territories Ilan Haimoff and counting. The ambitious channel is also bringing Format Licenses Partner and Entertainment 4http://www.latimes.com/entertainment/ in major names like Adam Sandler and Shonda Rhimes Format sales is a traditional business that has been and Media Practice Leader, movies/la-ca-mn-25-most-powerful- Green Hasson Janks franchises-20160524-snap-story.html

30 3http://www.boxofficemojo.com/movies/?id=transformers5.htm 31 TRENDS IN THE CHINESE FILM INDUSTRY

With China emerging as a significant global player in the film industry,Chenxi “Tracy” Liang, Supervising Senior at Green Hasson Janks, sat down with Seagull Song, a law professor, practicing attorney and published author, who advises entertainment companies in connection with U.S.-China cross border transactions.

LIANG: What do you think will happen with Chinese LIANG: How have the front-end and backend profit investment in the U.S.? participation deals in China evolved over the years? SONG: We have seen a slowdown in terms of China’s direct SONG: Ten years ago, participation deals did not quite investment into the U.S. since the beginning of this year exist in China. But thanks to the booming Chinese film due to various reasons. Instead of the “hot/easy money” industry, participation deals have become much more that flooded from China in the past few years, we will see common these days. Yet, as with the United States and more “rational money” and more scrutiny in such cross- elsewhere, the challenge is how to define the “net profit” border transactions moving forward. in such deals. We have witnessed a number of litigations at Chinese courts as a result of the ambiguity in such LIANG: What about U.S./China co-productions? definitions during the past two years. SONG: U.S.-China co-productions are still limited in number, and most of them have not been very successful LIANG: Are there any innovative distribution terms utilized at the box office level, because it is rather difficult to by the Chinese players? create a movie that is appealing to both Chinese and SONG: Yes. In addition to the traditional flat-fee and global/Western audiences due to cultural differences. percentage-based distribution arrangements, we also The new trend now is to produce movies targeting one saw the “Box Office Guarantee/Distribution” arrangement. type of audience (say the Chinese audience only), but then Under such deals, the Chinese distributor will make its bringing Hollywood “elements/talents” into the film, such own prediction on how well the film will do at the box as hiring scriptwriters, cast members or even special office level, and then offer a “guaranteed payment” to effects teams to make the film more at an “international the film investors. If the film does really well and the box standard.” Examples of such include Monster Hunt office revenue goes beyond its “guaranteed threshold,” U.S.-CHINA CO-PRODUCTIONS ARE and Wolf Warriors II. Both movies were Chinese local the distributor could enjoy a high percentage (up to 70-80 productions with Chinese leading actors, distributions and percent) in the revenue sharing. But on the flip side, if the STILL LIMITED IN NUMBER, AND investors; but behind the scenes, Hollywood influences movie does not sell well and the box office revenue is well MOST OF THEM HAVE NOT BEEN VERY (i.e., creative talents and consultants) were present in below the guaranteed threshold, then the distributor only both films to give them a “Hollywood feel,” which is more gets its “distributing fees,” but at the same time needs to SUCCESSFUL AT THE BOX OFFICE LEVEL, enjoyed by the Chinese moviegoers. pay the “guaranteed share” to the film investors. Under such circumstances, the producer could walk away with BECAUSE IT IS RATHER DIFFICULT LIANG: What are the opportunities for U.S.-based companies a decent package of “guaranteed payment,” despite the and talent? failure of the movie at the box office. TO CREATIVE A MOVIE THAT IS SONG: For the major studios, what they are after in China APPEALING TO BOTH CHINESE AND is the market access, meaning 1.4 billion people who are LIANG: What changes have you seen in the financing/ potentially moviegoers and content consumers. For the distribution deals between Chinese investors and GLOBAL/WESTERN AUDIENCES DUE TO independents, the Chinese market also means additional Hollywood studios? distribution channels, meaningful foreign sales revenue SONG: Deals between China and the U.S. have not changed CULTURAL DIFFERENCES. and also more financing opportunities. For talent, China much in the past couple of years. From the Chinese side, provides great opportunities. Given the increasing even though the Chinese players have become more cooperation between the agencies in Hollywood and sophisticated in deal negotiations, most of them still do Chinese studios and the increasing demand for U.S. talent not have enough bargaining power to get the terms in Dr. Seagull Haiyan Song working on Chinese films, the U.S. talent will see more their favor. From the U.S. side, some of the U.S. players Senior Advisor, Hogan Lovells and more opportunities to work on China-related projects, are more interested in working with “highest bidders” Professor and Director, Loyola Law School LA whether it is related to acting, scriptwriting, composing, rather than “seasoned players” from China because it consulting or other opportunities. is “easy money.” But this attitude could lead to potential problems down the road if their Chinese partners are total outsiders and have no clue as to what they are doing. We have seen this happening many times.

3232 33 CRYSTAL BALL: GAME CHANGERS

PRINCIPAL CHAPTER AUTHOR

PETER KLASS, GREEN HASSON JANKS

3434 35 So what is next? Not every idea takes flight, but things “The studios and exhibitors have not agreed on a PVOD 100 percent? Or will they try to squeeze the participants by The Impact of PVOD and SVOD on Release Windows like SVOD, PVOD and virtual reality/augmented reality window, with the sticking point being the revenue share reporting on a royalty basis. Since PVOD is an alternative Industry insiders are contemplating whether SVOD may significantly affect how Hollywood does business in split between studios and exhibitors; until both parties for the theatrical distribution, it will be interesting and PVOD will dominate the entertainment scene in the coming years. figure out a viable business model to grow the overall to see if studios classify PVOD as theatrical or home coming years. It seems likely that films will have shorter pie, a short term alternative will likely be to change the entertainment. This should be something to look out for theatrical runs and the ability to see first-run movies in Premium Video on Demand theatrical window. This could be done by shortening the until a new model emerges.” the home will expand. Many insiders also wonder how the Premium VOD (PVOD) is a term used to describe movies exclusive theatrical window to the first two weeks of a emergence of PVOD may impact theatrical admissions and that would be offered to view before being available on movie’s theatrical release and then grant access to PVOD Theatrical Subscription Model — home entertainment spending. streaming services or Home Video (Blu-ray and DVD). for the rest of the theatrical window,” Klass explains. Searching For the Next Netflix Some predict that PVOD may be the next industry Right now, the great majority of ticket sales are for Ken Halloway also sees the generational change affecting disruptor. Ken Halloway of Endgame Entertainment wonders what a specific film, rather than a monthly or weekly home entertainment. will happen to theaters when consumers watch movies at subscription, but the subscription model has the industry Sean Parker’s Screening Room Concept home on small screens. buzzing. After the tremendous success of SVOD in the Sean Parker had a 2016 start-up called Screening Room home entertainment market, theater owners have begun that would give users the ability to watch movies still “The theater operators need films to show — what experimenting with various recurring charges to allow IN THE NEXT YEAR, in theaters from the comfort of their homes for $50 for happens when the consumer decides they will not pay to customers to see unlimited movies for a specified time. a 48-hour rental. Exhibitors were critical of the idea as see that type of content on the big screen?” Halloway says. EXHIBITORS WILL many theatrical chains oppose any encroachment on the “They will not have enough product to fill their screens. Klass thinks this will appeal to the younger generation BE SQUEEZED TO A exclusivity of the theatrical window, approximately 60 to They might supplement with live performance events, of viewers, “Millennials like a subscription model like 90 days after release, and major studios were concerned but right now that is small, and I am not sure how much Netflix, but they are not yet the majority of theatergoers.” 30 TO 45 DAYS’ with piracy. Screening Room is still in development and bigger it will get.” Klass continues, “At this time I don’t see this as a currently working on anti-piracy technology. replacement option. Right now there is too much risk in EXCLUSIVE Peter Klass wonders how this will ultimately affect upsetting the current business model. You see exhibitors THEATRICAL The Impact of PVOD on Windowing participations. adding bells and whistles to try and keep the theatrical Because of a concerted effort by the studios to push for audience and continue to sell popcorn.” WINDOW AT MOST. shorter windows, in 2017 we witnessed major theater “The major impact on the reporting of PVOD for talent owners reluctantly engage in negotiations to shorten and investors on their participation statements is how the Clues from the DEG Year-End 2016 Home the theatrical window. Theatrical exhibitors do not want studios and distributors will report revenue. Will it be at Entertainment Report movies to be accessible on PVOD The annual DEG Report captures the state of the home Peter Klass during the initial theatrical release, entertainment market in the U.S. The 2016 report showed Senior Manager, as the first few weeks of a theatrical that the market has stabilized — SVOD and other digital Green Hasson Janks run are the phase when studios and sales have replaced losses in physical media (DVD & exhibitors get most of a movie’s Blu-ray). It is important to note that excluding streaming “Millennials have shorter attention spans and demand revenue. Studio heads signal that subscription revenues (SVOD) the market continues to convenience,” Halloway explains. “That may dictate the the PVOD offering will materialize sharply decline. Klass explains, “I believe SVOD is much future of SVOD and PVOD. This generation prizes the sooner rather than later. Whether more analogous to television licensing, and if streaming social experience of going to a theater for blockbuster PVOD is offered on day 1 or several subscriptions such as Netflix, Amazon and Hulu are not events like Star Wars movies and maybe scary movies too, weeks post release, there is likely counted then the home entertainment market continues to but all in all, they would probably prefer to see a movie at to be a contraction of the theatrical shrink. The hopeful outlook that new media revenue from home or on their iPhones.” window within the next year. EST and VOD would replace the traditional DVD and Blu- ray is all but gone.” Halloway also sees the box office as less predictable now. Peter Klass, Senior Manager at Green Hasson Janks, predicts that “Due to the shrinking home video market, studios “In the past, the box office had better predictability,” PVOD will be a major force in the are shying away from reporting SVOD similar to TV Halloway expands. “Those days are long gone. We don’t industry. (at 100%) and leaning to the historical home video know what the floor is on box office for a particular royalty model (usually 20% royalty on revenue with no film. You might do $5 million box office on a quality “In the next year exhibitors will expenses). As there is virtually no cost involved with SVOD film, with ‘A Level’ cast off of a $20+million P&A spend. be squeezed to a 30 to 45 days’ distribution—with royalty reporting studios are retaining From a financing perspective, this introduces enormous exclusive theatrical window at 80% of the revenue for themselves—profit participants uncertainty, but our industry will still be willing to finance most. After that, releases will go are encouraged to seek advise on the changing film and exciting projects with stars people want to see. La La Land directly to streaming and DVD television landscape.” and Girls Trip were examples of breakouts from that — platforms” Klass says. breakouts will always occur.”

36 37 Halloway has some warnings about what comes next. reality (AR), where the virtual and physical worlds are combined. The last big AR splash was Pokemon Go, which “The aftermarket inevitably shrinks because the other did not need special hardware or software, but Apple options are so great now,” Halloway states. “It is more and Google are both developing technology to better take bifurcated every day, and the result is that the cost of the advantage of AR. The smartphone industry is now poised content has to reflect that trend — and you have to be to offer apps. In fact, Apple is extending AR to all iPhones very selective on which films get an initial wide release and iPads with its iOS 11 — given the size of the market for and which ones are platformed. Also, right now you these devices, the potential is huge. have Netflix, Amazon and Apple with huge budgets, plus studios and independents. There are a lot of channels who Virtual reality (VR) actually immerses the viewer in a want product and are willing to pay premium pricing for different world rather than adding to the real world as AR it, but that may well shrink over the next five years or so would. For some time, VR has been predicted to be the as winners and losers for the eyeballs are determined. The next major trend, but it has not met those expectations, future will further differentiate between blockbuster and staying within gaming and industrial parameters for now. niche product cost structures.” It also lacks a social element, since a user puts on their headphones and “tunes out” to be in the virtual world. When asked about his opinion on the impact of PVOD on For VR, the market has been limited to date, but of course home entertainment trends, Klass is optimistic. all this can change with a disruptive app that changes DIGITAL ENTERTAINMENT GROUP YEAR END everything overnight. 5 2016 HOME ENTERTAINMENT REPORT Green Hasson Janks Senior Manager Peter Klass does DEG REPORT: U.S. CONSUMER SPENDING BY FORMAT 2016 YEAR END PVOD WILL NOT HAVE not see VR or AR impacting participations yet. U.S. Consumer Spending (in millions) “It is a complement, a marketing tool — it is not for telling Through Q4 Through Q4 MUCH OF AN IMPACT ON stories yet,” Klass explains. “Because of the limited nature SELL-THRU: Q4 2015 Q4 2016 YOY 2015 2016 YOY HOME ENTERTAINMENT. of the stories being told in VR/AR, profit participation has Sell-Thru Packaged Goods - All $2,171.75 $1,866.43 -14.06% $6,070.17 $5,490.57 -9.55% ITS IMPACT WILL BE ON not been much of a factor.” Sell-Thru (including EST) $2,722.77 $2,418.89 -11.16% $7,976.80 $7,500.53 -5.97% THE THEATRICAL WINDOW Ilan Haimoff, Partner and Entertainment and Media Practice Leader at Green Hasson Janks, is unsure of RENTAL: - PEOPLE WILL WATCH what the future will bring. Brick and Mortar Rental $154.84 $122.32 -21.00% $616.27 $489.56 -20.56% THEATRICAL AT HOME NOW. Subscription (physical only) $154.04 $123.23 -20.00% $658.87 $547.57 -16.89% “We are watching VR — but we do not know where it will take us,” Haimoff says. “It will continue to impact video Kiosk $390.82 $320.47 -18.00% $1,732.24 $1,434.98 -17.16% games and education but possibly not go mainstream. It Total Rental (excluding VOD) $699.70 $566.03 -19.10% $3,007.39 $2,472.11 -17.80% is currently an expensive and complex technology which Total Rental (including VOD) $1,218.62 $1,099.39 -9.78% $4,975.86 $4,548.89 -8.58% Peter Klass may need to be further tested in the television and motion Senior Manager, picture industry, so we will have to see where it goes.” Green Hasson Janks DIGITAL: Defining Success for Industry Gamechangers Electronic Sell-Thru $551.01 $552.47 0.26% $1,906.62 $2,009.97 5.42% “PVOD will not have much of an impact on home Green Hasson Janks Senior Manager Peter Klass VOD $518.92 $533.36 2.78% $1,968.47 $2,076.77 5.50% entertainment,” Klass says. “Its impact will be on the thinks that PVOD success will come via critical mass of Subscription Streaming* $1,349.72 $1,705.27 26.34% $5,081.88 $6,230.13 22.60% theatrical window — people will watch new theatrical viewers. Total Digital $2,419.65 $2,791.10 15.35% $8,956.97 $10,316.87 15.18% releases at home now. It does not compete with the Netflix or the TV model or disk purchases. PVOD is for “For PVOD, success will be if more than 20 percent of people who do not want or cannot get out to see a movie major studio films are released on PVOD,” Klass says. “If $5,291.10 $5,223.55 -1.28% $18,034.53 $18,279.55 1.36% TOTAL U.S. HOME ENTERTAINMENT SPENDING: in a theater; that can be a winning concept if the studios PVOD’s window starts at day 1 of the theatrical window Box Office (in billions) $3.33 $3.50 5.02% $10.57 $11.80 11.65% and exhibitors can figure out how to present PVOD as a or two weeks into it, that would also be a success because complimentary offering, not a substitute for the theatrical studios will collect their money quicker and a new * Paid subscribers only and does not include SVOD bundled with other market.” revenue stream will be created. The bottom line is that Disclaimer: This report contains information compiled from sources that the DEG believes as long as the exclusivity window is 30 days or less, it is have accurately reported such information, but which the DEG has not independently checked Virtual Reality/Augmented Reality a major game changer. Studios and producers want it, or verified. As such, the DEG does not warrant its accuracy or reliability. The report is not Video games were the first widespread uses for augmented but exhibitors are holding to the traditional model. PVOD intended to provide investment or securities advice.

38 5http://www.degonline.org/portfolio_page/deg-year-end-2016-home-entertainment-report/ 39 could grow the market as more people watch at home who otherwise would not make it to the theater, plus it could reduce piracy. Hopefully PVOD will grow the overall revenue pie, as it is in everybody’s best interest to grow the pie.”

Since PVOD and AR/VR are not currently financially relevant to the overall entertainment revenue pie but may likely become game changers in the near future, Klass offers his thoughts on how that can impact profit participants. CONCLUSION As the motion picture and television industry changes, it is important as a profit participant to stay aware and seek the “I would advise the talent or their rep to be on the lookout for how future contracts are written and monitor how right advice. As with all contracts, it is especially important to plan for unforeseen changes or advances and to negotiate for distributors treat PVOD and AR/VR for reporting to profit participants,” Klass says. “There is the potential to make less meaningful audit rights. money if contracts are written in favor of the distributor over the profit participants” Key Takeaways In tapping the views of the subject matter experts, certain themes stood out: • It is now necessary to have a far-reaching overseas • Film producers will improve their odds by creating distribution network to effectively release most films content that will appeal to a global audience

• China is the single most important country to keep • Television seasons are shorter, which is changing the an eye on for a number of reasons, including its vast way profit participations are viewed and calculated movie-going public and its enormous amount of investment money available to Hollywood • Television production is increasing due to the proliferation of cable channels and digital services, • The world is firmly ensconced in a digital revolution plus it offers less risk for studios where SVOD is entrenched and growing • Vertical integration will continue to be attractive to • Millennials are becoming more and more dominant entertainment companies in the entertainment marketplace, and they are causing shifts away from traditional media and are • Mega-mergers and acquisitions may further increase propelling the shift to SVOD vertical integration and create issues for profit participants What Does the Future Hold? Green Hasson Janks Partner Ilan Haimoff sees a bright future for the industry.

“With continued technology innovations and breakthroughs, you cannot predict the future,” Haimoff states. “During the next five to ten years, we will see the growing impact of new technology. This can mean new ways of consuming content through VR, SVOD, PVOD or anything else that emerges, and at the same time, greater opportunities for producers and distributors to sell quality content. Regardless of what the future brings, there will always be sharing of profits and risk, so participations will thrive for all of us. At Green Hasson Janks, our goal is to make sure everyone is getting their fair share.”

40 41 APPENDIX A APPENDIX A: KEY TAKEAWAYS FROM THE 2017 GREEN HASSON JANKS ENTERTAINMENT SURVEY TODAY’S LANDSCAPE THE IMPACT OF THE TREND TOWARD CONSOLIDATION AND VERTICAL INTEGRATION ON To accompany the MOST ATTRACTIVE M&A TARGETS PROFIT PARTICIPANTS OVER THE NEXT 3-5 YEARS subject matter TYPE OF ORGANIZATION experts’ views, Green Hasson 14% 12% COMPANY PROFILE A TECH COMPANY 3% INCREASED IMPACT 3% Janks conducted THAT COULD HELP OTHER - TO THE BENEFIT OTHER a survey of movie 76%Professional BUILD UP A NEW OF THE PARTICIPANT and television RESPONDENT ROLE Services EMERGING PLATFORM industry experts. (legal, accounting, banking, 3% venture capital, PRODUCER/ marketing, etc.) 49% CONTENT CREATION A COMPANY 14% THAT OWNS WILL EFFECTIVELY 71% 8% 34% AN EXTENSIVE STAY THE SAME INCREASED OTHER A COMPANY WITH LIBRARY OF FILM IMPACT - TO THE 11% A LARGE NUMBER AND TELEVISION DETRIMENT OF 11% Content OF BUILT-IN PRODUCTS THE PARTICIPANT SOLE 35% Creator ONLINE USERS/ PROPRIETOR LEADERSHIP SUBSCRIBERS 16% LEGAL 8%Producer 27% FINANCE THE IMPACT OF THE TREND TOWARD THE SVOD MODEL FOR BOTH TELEVISION GLOBALIZATION 5%Studio AND MOTION PICTURES ON PROFIT PARTICIPATIONS OVER THE NEXT 3-5 YEARS INTERNATIONAL OPPORTUNITIES

3% TODAY’S LANDSCAPE OTHER PROFIT PARTICPATION PREFERENCES INVESTMENT PREFERENCES 45%Additional media outlets Improved14% through technology governmental advancement, such incentives to as the expansion of produce abroad 20% Amazon and Netflix WILL EFFECTIVELY across the globe STAY THE SAME 51% 11% 8% INCREASED OTHER OTHER IMPACT - TO THE 46% 26% DETRIMENT OF 46% THE PARTICIPANT 11% 11% LARGE 46% FUNDING OF A INCREASED IMPACT Additional investment Increased visibility 43% UPFRONT THE ABILITY LARGER SLATE - TO THE BENEFIT OF funds to help with and exposure for SMALLER PAYMENT IN TO SELECT OF PROJECTS THE PARTICIPANT production clients to earn UPFRONT PAYMENT LIEU OF ANY WHICH WITH HOPE OF Increased customer money through IN EXCHANGE BACKEND SPECIFIC MINIMIZING base of existing content endorsement FOR A GREATER PARTICIPATION PROJECTS FINANCIAL RISK deals and other POTENTIAL UPSIDE TO FUND potential revenue ON THE BACKEND streams (such as name and 8%Increased opportunity likeness) for market-specific local content production

42 43 APPENDIX A APPENDIX A GLOBALIZATION CRYSTAL BALL PREDICTIONS CURRENT PROJECTS WITH CHINA REVENUE OPPORTUNITES IN CHINA LIKELY PRICE POINT AT WHICH CRITICAL TRADITIONAL THEATRICAL EXCLUSIVE WINDOW MASS OF VIEWERS WOULD CONSUME PVOD FOR FEATURE FILMS THREE YEARS FROM NOW OFFERINGS FOR FEATURE FILMS 3% 10% STAY THE SAME, 3% SHORTEN TO 3% APPROXIMATELY >$40 TO $50 PER FILM APPROXIMATELY 3 MONTHS 2 MONTHS 10% <$30 TO 27% PREMIUM VOD 60% THEATRICAL WILL OFFER MOST WINDOW WILL THEATRICAL BE IN FLUX PICTURES DAY DEPENDING ON AND DATE TYPE OF CONTENT 84% 44% 39% 17% 9% 48% <$30 PER FILM U.S. U.S.-CHINA CO- U.S.-CHINA CHINESE OTHER 74% 52% 48% 7% PRODUCTIONS PRODUCTIONS CO- PRODUCTIONS PROJECTS IN DIGITAL ANCILLARY TELEVISION OTHER WITH CHINESE TARGETING PRODUCTIONS WITH U.S. CONNECTION DISTRIBUTION DISTRIBUTION DISTRIBUTION INVESTMENT AT THE TARGETING AT INVESTMENT WITH CHINA (ONLINE AND (MERCHANDISING, WORLDWIDE THE CHINESE MOBILE) THEME PARKS) MARKET MARKET

HOW CHINESE GROWTH WILL IMPACT HOLLYWOOD’S HOW PVOD AND ITS SHORTENED THEATRICAL WINDOW WILL AFFECT THE DISTRIBUTION AND MONETIZATION OF FEATURE FILMS IN THE NEXT 3 YEARS FILM PRODUCTION AND DISTRIBUTION CRYSTAL BALL PREDICTIONS

DOMESTIC THEATRICAL PVOD DELIVERY AS A Major studios will experiment with PVOD, but PERFORMANCE IN THE FUTURE BUSINESS MODEL hold-off release of premium blockbuster content More58% Chinese More58% U.S.- NEXT THREE YEARS FOR MASS AUDIENCE 70% faces and Chinese China co- elements in productions to Hollywood films bypass the film PVOD release will catch-on for niche and independent quota system 20% films but not for premium blockbuster content Gradually67% falling It will63% be an option in the next 3 years

More32% Chinese- More29% films being Majority of films will be released on PVOD language films released in China 10% produced by ahead of the U.S. U.S.-China 20%Staying flat No,23% will not happen joint ventures in the next 3 years PVOD will not catch-on with the mainstream, but theatrical 0% window will gradually get shorter (less than 60 days) 7% Trending13% positively It 14%will be an option No significant impact in the next year

44 45 APPENDIX B: ABOUT THE GREEN HASSON JANKS PROFIT PARTICIPATIONS PRACTICE

Green Hasson Janks is one of the premier profit participation audit firms in the world. We perform forensic consulting reviews of motion picture and television producers and distributors to recover money and other valuable benefits while helping enhance relationships with the third party.

We also have a team of professionals available for litigation support and witness testimony, should you require that extra level of support.

Motion Picture and Television Participation experience includes the following areas:

SERVICE OFFERINGS • Contract Negotiation • Most-Favored-Nation • Digital Distributions • Participation Disputes • Distribution • Residuals • Entertainment Guild Contracts • Royalty/License Agreements • Expert Witness and Litigation Support • Theatrical Production Audits • Joint Venture

4646 47 MEET THE GREEN HASSON JANKS PROFIT PARTICIPATIONS PRACTICE

Ilan Haimoff Steve Sills Michael Stippel Greg Sills PARTNER, PARTNER, SENIOR MANAGER, MANAGER, GREEN HASSON JANKS GREEN HASSON JANKS GREEN HASSON JANKS GREEN HASSON JANKS [email protected] [email protected] [email protected] [email protected] (310) 873-1651 (310) 873-1653 (310) 873-1655 (310) 873-1656

DEDICATED STAFF FOR STUDIO TEAM LEADERS STUDIO STUDIO FIELD LEADS PARTNER CBS Greg Sills Steve Sills Anita Wu Sherry Carstens DISNEY Anita Wu/Helen Leu Steve Sills PRINCIPAL, SENIOR MANAGER, FOX Michael Sippel Ilan Haimoff GREEN HASSON JANKS GREEN HASSON JANKS HBO Peter Klass Steve Sills [email protected] [email protected] LIONSGATE Peter Klass Steve Sills (310) 873-1699 (310) 873-6716 MGM Greg Sills Steve Sills PARAMOUNT/DREAMWORKS Peter Klass/Michael Sippel Ilan Haimoff SONY Greg Sills Ilan Haimoff THE WEINSTEIN COMPANY Peter Klass Ilan Haimoff UNIVERSAL/NBC/FOCUS FEATURES Anita Wu/Helen Leu Ilan Haimoff WARNER BROS Sherri Carstens / Michael Sippel Steve Sills

Peter Klass Helen Leu SENIOR MANAGER, SENIOR MANAGER, GREEN HASSON JANKS GREEN HASSON JANKS [email protected] [email protected] (310) 873-6708 (310) 873-6710

48 49 APPENDIX C: BIOGRAPHIES

PRINCIPAL CHAPTER AUTHORS

ILAN HAIMOFF PETER KLASS Ilan Haimoff leads the Entertainment and Media Practice and the Profit Participation Audit Peter Klass has more than 15 years of entertainment accounting experience. He specializes Department. His specialty includes profit participation and forensic accounting on behalf of in contractual accounting for movie and television programs with a focus on performing talent, investors, and co-producers at both the major and mini studios. Ilan has over 24 years audits of production and distribution on behalf of profit participants. He also has consulted of accounting experience in public accounting and private industry serving clients primarily in on entertainment litigations, profit sharing arrangements, and settlement negotiations of the entertainment, financial services, and distribution service industries. audit claims. Haimoff has written various articles and other publications and has participated in various Klass began his career at Green Hasson Janks in 2009. He currently oversees participation speaking engagements, focusing on entertainment, profit participation, royalty, internal audits and consultations at various studios, including Paramount Pictures, Lionsgate, HBO controls, and anti-fraud. and The Weinstein Company. Prior to joining Green Hasson Janks, Klass worked at Sony Pictures Entertainment, where he managed issuance of profit participation statements and He is a member of the Motion Picture and Television Fund Professional Advisory Council, the coordinating worldwide third-party audits. CalCPA Entertainment Conference planning committee (four-time co-chair), the California State University Chancellor’s Advisory Council on the Entertainment Industry, the Institute Klass leads the Filmed Entertainment sub-niche at Green Hasson Janks and is a member of of Internal Auditors, the Beverly Hills Bar Association, the Association of Certified Fraud the Motion Picture and Television Fund. He co-authored both the firm’s 2015 whitepaper,New Examiners, and the AICPA. Media Trends: Consolidating to Meet Consumer Demands and the 2016 whitepaper, The Evolution of New Media: Making Money in a World Where Digital Streaming Rules. Haimoff is a Certified Public Accountant (CPA), a Certified Internal Auditor (CIA), a Certified Fraud Examiner (CFE) and Certified in Financial Forensics (CFF) by the AICPA. He holds an Klass received his degree from the University of California, Los Angeles. He is a Certified Accounting bachelor’s degree from California State University, Northridge. Fraud Examiner and is a member of the Association of Certified Fraud Examiners.

STEVE SILLS MICHAEL SIPPEL Steve Sills has over 40 years of entertainment accounting experience. His specialty Michael Sippel is a senior manager within our Participations Audit Practice and joined the firm involves audits of production and distribution of motion pictures and television programs in 2007. He specializes in profit participation audits, contract compliance and forensics. He on behalf of third-party profit participants. As a consultant, he has given expert testimony currently manages many of the audits at Warner Bros, Fox and Paramount/ DreamWorks. in entertainment litigation, been a contract negotiator for profit and royalty participants and participated in settlement negotiations of audit claims. Sills spent 13 years at the CPA He earned his bachelor’s degree from the University of California, Berkeley in Business and firm of Laventhol & Horwath, before founding Sills & Adelmann in 1990. In 2007, Steve Sills Economics. joined Green Hasson Janks. Sippel is a CPA, CFE (Certified Fraud Examiner) and ABV (Accredited in Business Valuation). He Sills is an attorney, CPA, Certified Fraud Examiner and Certified Financial Forensic. He has has written numerous articles, including those related to new media, vertical integration, and been a featured speaker at the California Society of Certified Public Accountants and New York “breakeven” deal structures, and has been a featured speaker at the CalCPA, as well as the CPA Foundation, as well as the UCLA and USC law schools. UCLA and USC film schools. Sills’ publications include: Profit Participation in the Motion Picture Industry, Los Angeles Lawyer, April 1989; Participants in the Motion Picture Industry, Entertainment, Publishing and the Arts Handbook, 1987; and Movie Money: Understanding Hollywood’s Creative Accounting Practices, 1998 (2nd edition published in 2006).

ANITA WU Anita Wu joined Green Hasson Janks in 2000 and has over 17 years of auditing experience within the entertainment industry. Her specialty includes profit participation audits on behalf of talent, investors and co-producers at both the major and mini studios. She currently manages most of the audits at Walt Disney Pictures and Television and NBC Universal. Anita has also performed audits of merchandise licensing royalties and music royalties. Wu is a Certified Public Accountant and a Certified Fraud Examiner. She earned her Bachelor of Science Degree with Honors from the Haas School of Business at the University of California at Berkeley, in May 1996. During her years on campus, she actively participated as a member of the International Business Fraternity of Delta Sigma Pi. She is a member of the Motion Picture & Television Fund Foundation — Professional Advisory Network and CalCPA.

50 51 APPENDIX C APPENDIX C

INTERNAL SUBJECT MATTER EXPERTS EXTERNAL SUBJECT MATTER EXPERTS

BEN SHEPPARD CRAIG EMANUEL Ben Sheppard is a principal leading Green Hasson Janks Expert Witness and Litigation One of the industry’s leading entertainment lawyers, Craig Emanuel focuses his practice support practice and has nearly 30 years of experience. He has deep expertise in litigation on the representation of high level writers, directors, actors, producers and production support and expert witness services, as well as forensic investigations and valuations. companies in all aspects of motion picture and television transactions at both the studio and Sheppard works closely with clients to helping them find answers to situations that may pose independent levels. In 2016, his clients were a part of four of the Best Picture Academy Award a threat to their business. nominees. Starting his public accounting career in Houston, Sheppard previously worked at Deloitte In addition, he handles the negotiation of strategic distribution and finance-related before moving to Los Angeles and accepting a job at Disney. Since then he has also worked transactions across all platforms, including the licensing of digital content on behalf of high for big studios such as MGM and Warner Brothers and as a consultant on litigation, forensic net worth individuals and production companies. He has also been involved in the creation investigation and valuation projects. and launch of a new television network. Sheppard has offered expert witness opinions in over 35 separate matters, in state courts, Emanuel speaks regularly at venues such as UCLA’s Entertainment Symposium, the federal courts and arbitrations. He has also served as a court appointed neutral expert in a Women in Film and Television Summit, The Sundance Producer’s Lab and at various Film state court matter. Independent Labs. He was previously appointed as an ambassador of Screen Singapore and has lectured to students of film and television around the world. Sheppard is a Certified Public Accountant and Certified Valuation Analyst. He is also a member of the Beverly Hills Bar Association and American Bar Association and is a frequent speaker for a variety of entertainment conferences and for other organizations. He has been published in Wiley’s Litigation Services Handbook, Sixth Edition and ABA’s Landslide Magazine. Sheppard has a BBA in Management Info Systems and MBA in Accounting from the University of Houston.

JOHN BERLINSKI John Berlinski’s practice focuses on representing television and theatrical talent and JENNIFER SULLIVAN studios in their most significant disputes, with an emphasis on providing pre-litigation Jennifer Sullivan is the senior marketing manager at Green Hasson Janks and has over 15 advice in connection with profit participation audits, negotiating audit settlements and years of experience in marketing and business development. She has a specialized focus litigating profit participation claims. While most of Berlinski’s representations are in the areas of accounting, financial services and entertainment. Jennifer is responsible for confidential, certain matters have been the subject of articles in the Hollywood trades and leading, inspiring and growing the firm’s brand internally and externally while advising and The Wall Street Journal. collaborating with her team to execute the firm’s initiatives in the most efficient and innovative way possible. Prior to joining the firm, Berlinski spent seven years at NBCUniversal, where he was the Senior Vice President and Head of West Coast Television Litigation. At NBCUniversal, he Prior to Green Hasson Janks, Jennifer acted as Creative Director for an entertainment firm actively participated in and managed the company’s entertainment litigation docket, which to rebrand the firm and execute a new marketing and business development plan to increase included disputes involving profit participation, copyright, idea theft, right to privacy, breach visibility in the sector. She also held senior positions at two other financial services firms of contract, labor and employment and other matters. Berlinski was previously the head where she opened the west coast office to increase brand eminence and expand client base on lawyer for NBCUniversal’s profit participation group, managing a team of attorneys dedicated the west coast in addition to leading the frontline support team for over 100 clients invested in to providing advice regarding the negotiation of profit participation contracts, the issuance of open end commingled real estate funds. accounting statements, audits and the resolution of audit claims. Before joining NBCUniversal, Jennifer obtained both a Bachelor of Arts degree in Economics and Political Science from the Berlinski worked for seven years as a general litigator at a global law firm. University of Southern California.

KEN HOLLOWAY TRACY LIANG Ken is an accounting/finance executive and has held significant positions in the film and Tracy is experienced in entertainment accounting and forensic investigations, specializing in technology industries including Controller/CFO duties, P&L responsibilities, M&A experience contract compliance and profit participation audits in a variety of industries including film and and start-up ventures. He has been the SVP of Finance and Controller for the last 11 years at television, video games and IP licensing. Endgame, with duties in both production and distribution. Tracy is a licensed CPA in the state of California and is a member of the California Society of Ken is a CPA and received his BSBA in accounting and marketing from the University of Arizona. CPAs. Tracy received her bachelor degree in accounting from Shanghai University of Finance & Economics, and her master degree in accountancy from University of Illinois at Urbana- Champaign. Tracy is fluent in Mandarin Chinese and has authored several articles on China-US entertainment.

52 53 APPENDIX C

EXTERNAL SUBJECT MATTER EXPERTS

DR. SEAGULL HAIYAN SONG THROUGH THE Dr. Song, author of the leading treatise Entertainment Law in China, is Senior Advisor at Hogan Lovells and also a visiting professor at Beijing Film Academy and Peking University School of Law. Dr. Song has practiced intellectual property law and entertainment law in mainland China, MERGER IN 2007 Hong Kong and the United States for over 20 years. Before joining the academic world in 2012, Dr. Song was Senior Counsel with Disney, overseeing the company’s intellectual property division in the Asia Pacific region, a consultant with Arnold & Porter LLP, and a partner with King and Wood Mallesons, heading the intellectual property practice of the firm’s Shanghai Office. Dr. Song was acclaimed as an “Asia Law Leading Lawyer” in the field of intellectual property law 2006- AND CONTINUALLY 2011. Dr. Song is Board Director and Executive Committee member of the Asia Society Southern California Center and also Co-Chair of the US-China Film Summit Committee. Dr. Song also sits on the Advisory Board of the China Intellectual Property Law Society and the Editorial Board of the Journal of Copyright Society of the U.S. INVESTING IN Dr. Song has published numerous books and articles in the field of US-China intellectual property law and entertainment law. Her recent books include: Entertainment Law (The Commercial Press, 2014); Selected Chinese Patent Cases, co-authoring with Chinese Supreme People’s Court (Wolters NEXT GENERATION Kluwer, 2014); New Challenges of Chinese Copyright Law (Kluwer Law International, 2011) etc. Dr. Song received her first LL.M degree from Hong Kong University and her second LL.M and J.S.D (Doctorate of the Science of Law) from University of California, Berkeley School of Law. She is admitted to the Bar of People’s Republic of China and the California Bar of the United States. LEADERSHIP AND TOP TALENT, GREEN HASSON JANKS IS WELL GREEN HASSON JANKS WOULD LIKE TO ESPECIALLY POSITIONED TO BE THANK THE MOTION PICTURE TELEVISION FUND A LEADER IN PROFIT FOR THEIR HELP WITH THIS YEAR’S SURVEY. PARTICIPATIONS WELL INTO THE FUTURE.

Ilan Haimoff Partner and Entertainment and Media Practice Leader, Green Hasson Janks 54 55 At Green Hasson Janks, we are passionate about helping our clients and our people #BeMore by focusing on building thriving businesses and creating a better future. The firm works as a business advocate for its clients — providing personalized service and building long- term relationships to help position our clients for the future. Ranked as a top-20 largest accounting firm on the Los Angeles Business Journal’s Book of Lists, the firm has 14 partners and approximately 150 staff members that serve over 3,000 clients. The firm is a member of the American Institute of Certified Public Accountants (AICPA), the AICPA Governmental Audit Quality Center (GAQC), the Public Company Accounting Oversight Board (PCAOB), the California Society of CPAs and the California Association of Nonprofits (CAN).

Green Hasson Janks is also an independent member of HLB International, a worldwide organization of professional accounting firms and business advisors represented in over 100 countries. This affiliation provides access to the subject matter experts of other member firms in most major cities around the world. Green Hasson Janks is the exclusive member firm of HLBI in Los Angeles County.

VISION At Green Hasson Janks, we foster a flexible, entrepreneurial environment so our people achieve their personal and professional goals.

Our success is driven by retaining the best, diverse talent. We invest in our people and technology to deepen firm expertise and fuel sustainable growth. We partner with our clients locally and globally to deliver innovative solutions.

WE TRANSFORM VISION INTO REALITY BY SERVING: • Media companies that • Organizations that capture our imagination improve our world • Food and beverage • Businesses that enhance companies that nourish us our health and wellness

THE GREEN HASSON JANKS ENTERTAINMENT AND MEDIA PRACTICE The Entertainment and Media practice focuses on helping forward-thinking, entrepreneurial organizations and individuals within the entertainment and media industry by providing assurance, tax, film and television profit participation, royalty and licensing audit, expert witness and litigation support, and consulting services designed specifically with their needs in mind. Additionally, the firm’s dedicated tax team is specifically trained in dealing with complex tax issues for privately held, high-growth entertainment companies. They work with clients to identify tax planning opportunities that may apply to their businesses.

Filmed entertainment is a large section of this industry and includes everyone from production companies to directors and actors. Our Filmed Entertainment Team handles accounting, taxes, profit participation, and other consulting services for growing companies in this industry. We help clients plan for the future through personalized proactive business strategies along with performing general compliance work. We believe in being more than just our clients’ accounting firm, we want to be their trusted business advisor.

In our media practice, we work with clients in the areas of advertising, marketing, digital content and new media. We have a dedicated team helping companies involved in media and technology projects gain a competitive advantage and maximize revenues through proactive accounting and strategic planning. Our experience with advertising, digital media and multi-channel networks gives us key insight into understanding issues around revenue recognition, cost allocation, accounting for content production and other complex transactions such as licensing and distribution.

An accounting firm that services tech clients not only needs to have a depth and breadth of technical expertise but also the flexibility and resources to deal with the dynamics of an industry that is constantly changing and innovating — which impact how business is conducted on a daily basis. Green Hasson Janks has the expertise that media and technology companies need to take their business to the next level.

The firm also provides its clients access to resources that highlight emerging trends and inspire thoughtful discussions amongst peers and industry leaders through surveys, industry events, blogs, whitepapers and other publications. The firm is also able to use its breadth of experience to assist clients with best practices and benchmarking to grow your business and plan for the future.

10990 Wilshire Boulevard, 16th Floor | Los Angeles, California 90024 Tel: 310 873-1600 | www.greenhassonjanks.com 56